Gold rush continues as Metaliko tests mettle

Gold floats are shining in a bleak market for initial public offerings (IPOs). The latest is
Metaliko Resources
, a small explorer with a strategic land holding in Western Australia.

Metaliko seeks up to $6 million to develop several projects in WA’s Eastern Goldfields, near Kalgoorlie. If it succeeds, it will be the 17th gold company to list this year, with five more in the wings.

The median loss against the issue price for gold companies listing this year is 5 per cent, in a weak market.

A firmer gold price and the pent-up demand as a result of not being able to float during the financial crisis, are factors that have driven more gold companies to list this year.

Metaliko’s package of previously explored tenements in the Eastern Goldfields province gives it an advantage over other micro-cap gold companies that are developing projects in unproven areas with less infrastructure access.

The explorer’s managing director,
James Searle
, was chief executive of Dragon Mining for eight years until 2005. After soaring in 2003, Dragon’s shares declined for several years and are now at 10¢. Dragon produces gold from mines in Sweden and Finland.

After leaving Dragon, Dr Searle spent two years sailing around Indonesia before returning to Australia to find a new project. He knew some of the directors of
Heron Resources
, a nickel explorer seeking to spin out its Eastern Goldfields gold assets into another venture.

Metaliko has an option to buy 126 tenements owned by Heron, covering 471 square kilometres in the Eastern Goldfields. All up, it will own 135 tenements.

Metaliko believes it would take years and cost millions to build a similar package of assets in the world-class Eastern Goldfields area.

The Perth company also has a tin project in north-east Victoria because it believes the granite could support significant gold mineralisation. At this stage, the project looks like a long shot.

More promising are Metaliko’s three key projects in the Eastern Goldfields: Goongarrie Lady, Windanya and Anthill. Goongarrie and Windanya are near Norton Gold Fields’ Paddington gold mine.

These and other Metaliko projects underwent significant exploration work from the 1980s until 2000, then were largely untouched for several years due to a lower gold price and issues with previous explorers.

None of the tenements has resources that comply with the Joint Ore Reserves Committee, but Metaliko hopes some of its projects will be compliant within 12 months.

The short-term strategy is to develop some modest resources that can be mined within a year after listing and give early cash flow to accelerate further exploration. Metaliko should start drilling within weeks of its IPO having closed.

The company hopes to make significant finds in a province that some industry observers believe has already delivered its full potential. Metaliko says that the Eastern Goldfields still offer opportunities.

One concern for prospective investors is a clawback option owned by Barrick Gold Corp on seven tenements in Metaliko’s area. The agreement allows Barrick to buy a 70 per cent interest in any 300,000-ounce inferred gold resource developed on those tenements, through payment of 2½ times Metaliko’s exploration spend. Upon payment, the resource would be 30 per cent owned by Metaliko. This would be a blow for Metaliko, which says the seven tenements are peripheral to its key holdings and are not a current exploration focus.

Metaliko’s capital structure is reasonably clean. It is issuing up to 30 million 20¢ shares to raise $6 million. Another 11.3 million shares go to the vendors (including Heron), with 20.2 million pre-IPO shares having been issued at 10¢ each in tranches over the last nine months.

Total outstanding shares are 61.5 million, for a market capitalisation of $12.3 million. Nineteen million options, struck at 20¢, expire before July 2014. On a fully diluted basis, assuming options are exercised, the market capitalisation is over $15 million.

Importantly, pre-IPO shares and vendor shares are in escrow for two years. No cheap shares can be dumped on the market after listing.

On balance, Metaliko has a reasonable land holding and projects in or near zones with million-plus ounce deposits. Proximity to producing mines is no guarantee of exploration success, as every ore body is different. But the company is well placed to treat its ore at nearby mills and become a merger candidate for a larger nearby gold company, should it makes discoveries and get to production.

Reaction to the IPO is positive, and Metaliko expects to raise the maximum subscription number.